30% of European CRE assets stranded due to energy performance
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Stricter energy efficiency regulations and commitments to hit net-zero targets have led to 30% of Europe’s commercial real estate assets to be stranded, reveals a recent survey from ESG data intelligence company, Deepki.
The sectors facing the greatest risk of stranded assets are retail, followed by industrial, offices, healthcare, and residential.
The CRE sector faces a stranded assets “time bomb” as the race is on to decarbonise assets, particularly following the European Union’s recently passed Energy Performance of Buildings Directive, which declares all new buildings to be zero-emission as of 2030.
The Deepki survey involved more than 250 senior European commercial real estate asset managers from the UK, Germany, France, Spain and Italy, with €226.3 billion of AUM combined.
More than half of these firms informed that 30% of their assets were now stranded due to energy performance, and half also revealed that a further 20-40% of their assets were at risk of becoming stranded in the next three years.
This trend is already reflected in the stance of lenders, as banks raise the cost of borrowing for commercial real estate clients that don’t live up to green energy standards. Deepki Chief Executive, Vincent Bryant reported that banks are increasing interest rates by as much as 15 basis points per year for clients that do not follow the Carbon Risk Real Estate Monitor (CRREM).
The conundrum of decarbonisation and net-zero targets will be on the agenda at GRI Club’s biggest event of the year, Europe GRI 2024, on September 10-11th in Paris.
Join 700+ fellow real estate market leaders with AUM across Europe for informal roundtable discussions to address this issue and more.
Is Germany still an investment safe-haven?
Is Germany still a safe-haven for real estate investment? This question was at the top of the agenda at the recent Deutsche GRI 2024, and this exclusive GRI report reveals the honest insights from investors, lenders, and other market players shared during the closed-door discussions at the annual conference.
A cautious approach to investing in the country is certainly preferred, but confidence remains in the stability of the German economy, the rich talent pool, and the capabilities of its real estate market.
A recurring theme among investors was the need to reallocate and deconstruct portfolios with a focus on stable core and core-plus investments, and a growing emphasis on the individual life cycle, including investments in student housing, family homes, and senior living facilities.
The exclusive report also shares takeaways presented by industry experts on the economic outlook for Europe, as well as impacting structural issues.
The International Monetary Fund (IMF) recently revised its global economic outlook upwards, reflecting better-than-expected performances from major economies, but expert analysis at Deutsche GRI 2024 reveals that this newfound optimism does not extend to Europe.?
Despite the less catastrophic outcomes than initially feared, Europe’s economic recovery remains sluggish, and forecasts are for an “anaemic recovery” marked by slow and uneven progress.
While stagnation is not severe enough to prompt politicians and policymakers to take bold actions, there is a state of denial, with attempts to return to austerity while ignoring the significant developments in the US, China, and other parts of the world.
If this denial continues for too long, Europe will eventually face the societal impacts of segregation and economic disparities - the full extent of which cannot yet be comprehended.?
How is the Nordics region positioned in the complex repricing scenario?
The Nordics has recently lost its status as a safe-haven in real estate investment as transaction volumes plummeted in 2023 and repricing materialised faster than in other European markets.
Investors in the region now hold mixed sentiments regarding opportunities amid pricing uncertainties and geopolitical risks, as was discussed among the region’s most senior players in an honest and free-flowing discussion at the GRI Nordic Investment Volumes Club Meeting.
The latest GRI Club report reveals the intricacies of these sentiments, addressing four Nordic markets: Denmark, Finland, Norway, and Sweden.
Regarding opportunities in the region, the energy transition, and more specifically the push for decarbonisation and energy security, was noted to be presenting significant opportunities in the infrastructure sector.
Meanwhile, asset class specific opportunities include the logistics and residential sectors. The former is benefiting from strong fundamentals driven by supply chain diversification, ecommerce growth, and nearshoring trends, while the latter is witnessing strong demand for rental housing, particularly in larger cities, driven by positive migration trends and limited supply.
Discussions also addressed the appeal of data centres in the Nordics region, amid major investments from tech giants, such as Google, Meta, Amazon, and Microsoft, allured by the abundance of affordable land, renewable power sources, and the unique advantage of free air cooling.
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Portugal’s housing crisis: Rehabilitation vs. greenfield development
Portugal continues to face one of Europe’s worst housing crises, as demand continuously outweighs supply and the real estate market struggles to overcome the obstacles in increasing housing availability.
The latest GRI Club meeting among Portuguese market players addressed the dilemma that is rehabilitation versus greenfield development in tackling the housing crisis, and the key takeaways are concisely presented in this exclusive GRI report published following the meeting.
First to emerge as a significant barrier to redevelopment of historical properties were the restrictions imposed by municipalities to safeguard these buildings. Restrictions were reported to often lack clear justification, and frequently escalate the costs of a rehabilitation project.
Despite tax breaks for such redevelopment, the increased costs, common structural issues, and the unrealistic aims of achieving optimal energy efficiency in old buildings often make such projects unfeasible.
Meanwhile, the growing importance of incorporating flexibility into real estate design in order to cater to fast-evolving societal trends was also noted to support preference for greenfield development, where space and design constraints are far less prominent.
Forecasting future demands for real estate is one of the most challenging aspects of the industry at present, and developing a product which retains relevance over the next ten years must incorporate flexibility into the design, such as interior walls which are easily removable to transform spaces.
Attending to the end-user of today brings the challenge of “reinventing on a daily basis, reinventing the business, and thinking outside of the box,” shared one participant.
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